Deeper dive: Why Rivian and Volkswagen are going at it together
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The numbers don’t lie. Serious difficulties with finances and software architecture are pairing together one of Europe’s storied carmakers and a loss-making EV startup across the pond. Their new joint venture will be called “Rivian and VW Group Technology” and will strive to keep both groups competitive in a new era for the auto world. That includes fending off threats from dominant rivals like Tesla (TSLA), as well as Chinese competitors that are driving into markets across the globe.
New shocks: Rivian (NASDAQ:RIVN) is losing over $1B per quarter, or $30K-$40K on each truck it sells, with current volumes not enough to sustain its spend rate. Unless it acted quickly, bankruptcy could have been in the cards, especially given high borrowing costs and trends pointing to an EV slowdown. Meanwhile, Volkswagen (OTCPK:VWAGY) is facing challenges of its own, including in-house innovation and breaking into the “software-defined vehicle” market. Problems with its software subsidiary called CARIAD (Car, I Am Digital) have delayed multiple car launches from brands like Audi and Porsche (OTCPK:POAHY), which are crucial for VW due to their high profit margins.
The issues previously led to a shakeup at Volkswagen (OTCPK:VWAGY), leading to the ouster of CEO Herbert Diess. He was replaced with Porsche brand leader Oliver Blume, who overhauled CARIAD’s leadership last year with a new chief software officer from Rivian (NASDAQ:RIVN). It also triggered a rethink of how VW should approach underlying vehicle architecture. Eventually, the carmaker turned to an industry startup (i.e. Rivian) that was having success with its design and ownership of its electronics on board, but needed a cash lifeline and favorable supply chain pricing to grow in “meaningful scale.”
In-house control: Volkswagen (OTCPK:VWAGY) now plans to invest the $5.8B in Rivian (RIVN) and the joint venture by 2027, up from an earlier commitment of $5B outlined in June. The funding will be tied to specific milestones, including successes and combinations in software, hardware, data, and network architecture. It will also give VW better access to the North American truck market, and might even lead to a bigger investment or a total acquisition in the future, especially if its new Scout Motors bet doesn’t pay off.
Long way to go? In premarket movement, Rivian (RIVN) shares are up 14.7% to $12.13. The EV stock still trades well below its $78 IPO pricing level in 2021 and its all-time closing high of $172.01.